Washington, D.C. – Today’s iPod Generation could be tomorrow’s empowered investors if new technology being applied to their MP3 players could be harnessed in some form to aid them in making smart investment decisions for retirement, according to Health, Education, Labor and Pensions (HELP) Committee Ranking Member U.S. Senator Mike Enzi, R-Wyo.
During today’s HELP Committee hearing on “401(k) Fee Disclosure: Helping Workers Save for Retirement,” Enzi likened the technology advancements needed to equip investors with proper tools for comparing investment vehicles’ financial earnings, fees and asset holdings to the new iTunes ‘Genius’ software unveiled by Apple CEO Steve Jobs last week. The intelligent software has the capability of creating an entire smart playlist around a song selected by the user and also makes music recommendations based on listening patterns.
“If we are able to have Genius software for music then why can’t we have Genius software for retirement savings? If we gave the iPod Generation Genius software for retirement savings, then we can be sure that our younger generation is set for their golden years as they are set for their music today.
“With this type of innovation for retirement savings, I envision that computer models could easily produce useful, meaningful and transparent disclosures based upon each employees’ and their family’s needs.”
Enzi’s full statement as prepared for delivery is included below.
Statement of Senator Michael B. Enzi
U.S. SENATE COMMITTEE ON HEALTH, EDUCATION, LABOR AND PENSIONS
401(k) Fee Disclosure: Helping Workers Save for Retirement
Wednesday, September 17, 2008 - 10:00 a.m.
430 Dirksen Senate Office Building
Mr. Chairman, Thank you for holding this very important hearing today concerning the disclosure of fees for 401(k) pension plans.
We are holding this hearing at a very opportune time. What’s occurring in our current capital markets holds key lessons for individuals who are investing their retirement savings for their golden years. We should diversify our investments and we should not take on too much risk. These are the two principal foundations of investing. Unfortunately, our financial institutions seemed to have forgotten those rules. We cannot afford to do the same with our retirement savings. The Department of Labor tells us that there are nearly $2.3 trillion in 401(k) and related accounts invested in our capital markets and we must invest those monies prudently.
With respect to the fees paid on those accounts, over the years we have been told by experts that fees matter and that the smallest increase in fees can cost thousands of dollars over a 20- to 30-year period of time. However, we also have been told that we cannot just pay attention to fees. We also need to make the right financial investments based upon our families’ needs for the future.
Just last week a major news publication printed an article in which the reporter sought to find out how much she was paying in 401(k) fees) and whether those fees were in line with the fees paid by others for similar investments. I request unanimous consent to have the article included in the Record. The good news is that she was able to find the information. The bad news is that it was an exhausting journey because she had to seek out computer programs and expert advice that were not given to her by her employer.
She found that her indexed fund fees were smaller than the industry norm, however, her international fund fees were a bit higher. After careful analysis, she decided to keep her international fund investment because it would delivered higher returns over the long-term.
We can make 401(k) fees as transparent as we like, but if we don’t provide the tools to employees and individuals on how to interpret and compare that information, then the information is useless.
Last week Apple Computer’s Steve Jobs had a major press conference on his new innovations. One of his new ideas was something called “Genius” software. This Genius software would enable a person to pick one song from his or her library of music and then the software would put together a song list. If we are able to have Genius software for music then why can’t we have Genius software for retirement savings? If we gave the “i-pod generation” Genius software for their retirement savings, then we can be sure that our younger generation is set for their golden years as they are set for their music today.
Recently, Chairman Chris Cox of the Securities and Exchange Commission embarked on an initiative to require companies to use XBRL (eXtensible Business Reporting Language) for companies and mutual funds to tag the data in their financial disclosures. The concept is based upon a very similar concept used by Steve Jobs but instead of tagging song titles and genres, the SEC wants to tag financial earnings, fees, and asset holdings.
With this type of innovation for retirement savings, I envision that computer models could easily produce useful, meaningful, and transparent disclosures based upon each employee’s and their family’s needs.
Mr. Chairman, I also want thank you for working with us to invite a small business person to testify. Under the Pension Protection Act, we made great strides in reducing the hurdles for companies to establish auto-enrollment 401(k) plans. However, we still lag behind in the number of small businesses offering retirement benefit plans. According to recent data by the Congressional Research Service, only 26 percent of employers with fewer than 25 employees have retirement plans. This compares to 65 percent of all large companies that have pension plans. Anything that we do with respect to 401(k) fee disclosure and investor education should not place disproportionate burdens on small entities nor should it saddle them with additional liability.
I believe that everyone in the room today shares the same goal of providing better 401(k) fee disclosure. However, we should be looking down the road and harness technology to make that information more useful and meaningful to working families. They are the only ones who can make the necessary choices to address their own needs.
Again, I thank you for holding this very important hearing today.